#Crypto 360
A crypto coin is a fundamental part of its native blockchain while a token can be issued on top of an existing blockchain. What are coins and tokens, and how do they differ?
➔ Coins are indigenous to their blockchains, and their main function is to act as a medium of exchange.
➔ Tokens are created on top of existing blockchains and can be used to represent anything--from an asset to a service.
➔ Contrary to their name, stablecoins are often tokens based on blockchains such as Ethereum.
➔ Tokens are easier to create than coins because tokens use the existing blockchain framework.
➔ It is essential to understand the difference between coins and tokens when engaging in cryptocurrency trading.
When it comes to cryptocurrencies, it is easy to get confused as most of them may seem similar; but they are not. Therefore, it is essential to grasp the differences if you seek to better understand the cryptocurrency market.
The difference between crypto coins and tokens is rather simple and comes down to definition. What is important in determining the meaning of a word is how it actually works, this is especially true when it comes to crypto terms. As with any new technology, we, as a crypto community, will get to a point where everyone understands what cryptocurrency is and is not.
Below, we will discuss the differences between coins and tokens.
A crypto coin refers to a cryptocurrency that is indigenous to a particular blockchain. For example:
• The coin of Bitcoin blockchain is BTC.
• The cryptocurrency used in the Ethereum blockchain is called ETH.
• Litecoin’s blockchain token is known as LTC.
Coins, like other forms of assets, are mainly used as currency and stores of value. A major difference that sets coins apart is their creation process, which is usually done through proof of work (PoW) or proof of stake (PoS).
Coins such as Bitcoin (BTC) and Litecoin (LTC) operate as a store of value and are created through proof of work (PoW). Miners try to solve complex cryptographic puzzles and the first one to find the right solution adds a new block to the blockchain and receives new coins in return. This process enables miners to have an incentive to keep the network secure and decentralised.
Litecoin is one of the early versions of Bitcoin and differs from Bitcoin in that it uses the Scrypt algorithm instead of SHA-256. This means that while Litecoin shares many similarities with Bitcoin, it has some key differences:
• Litecoin has a total circulation of 84 million coins, while Bitcoin has 21 million.
• The average block time for Litecoin is 2.5 minutes, while Bitcoin's is 10 minutes.
• Litecoin’s halving occurs every 840,000 blocks, while Bitcoin’s halving occurs every 210,000 blocks.
These changes were made to make Litecoin a faster and cheaper option for transactions than Bitcoin.
When it comes to proof of stake (PoS), coins such as Ethereum’s ETH and Solana’s SOL work differently. Rather than using miners, these blockchains use validators who maintain the network by putting their coins at risk. Validators can hold a certain number of coins, and the more coins validators hold, the higher the chances of getting rewards for validating transactions.
Ethereum and Solana are both smart contract platforms where developers can build decentalised apps (dApps) and develop services like NFTs. ETH and SOL are the currencies used to facilitate transactions within these ecosystems.
A crypto token is a representation of an asset or interest that has been tokenised on an existing cryptocurrency's blockchain. Tokens have come a long way from their infancy, being an idea hatched by a group of technologists who wanted everything to be free from intermediaries.
Image: Stablecoins, a popular form of crypto tokens, by DMarge
Today, tokens have evolved into a billion-dollar industry, which includes giants as BMW and Rakuten, governments like India, cryptocurrency exchanges like BitDelta (BDT token). Recently, there has been tremendous innovation in tokenisation of assets--ranging from equity to art and many others.
These are being used as incentives and loyalty points, to tokenise the shares of companies, and some have gone the extra mile of listing them on different exchanges.
Tokens are used not only as a means of payment but can also be used for other purposes. The most common types of tokens include:
• Utility Tokens: These tokens enable their users to use decentralised services, play games, or block ads, as is the case with the Brave browser. They may also act as governance tokens, meaning their holders are entitled to vote on changes to the protocol.
• Security Tokens: These are tokenised securities and could include digital representations of assets such as stocks, bonds, or insurance policies.
• Non-Fungible Tokens (NFTs): NFTs are unique digital assets that cannot be duplicated. They are used to mint and assert ownership of digital art, music, and other forms of creative content. Every NFT has an identifier on the blockchain that proves the owner’s right to the asset.
Some of the most widely used crypto tokens are Tether (USDT), USD Coin (USDC), and Uniswap (UNI). USDT, the biggest stablecoin by market capitalisation, enables investors to remain in the crypto market while switching to a dollar-denominated asset. On the other hand, UNI is the governance token of Uniswap, a platform that allows users to swap tokens without intermediaries.
Recommended Read: The Social Impact of Blockchain and Cryptocurrencies
The main difference between a coin and a token is that tokens are distributed on a blockchain while coins are not. This means that while a coin is a fundamental part of its blockchain, a token can be issued on top of an existing blockchain, allowing for compatibility across different systems.
Image: Crypto coins vs. Crypto tokens, by DigitalChamber
The key distinction between coins and tokens is based on their design and function. Coins are self-sufficient and are mostly used as a type of digital currency and as a means of exchange, and in many cases, they are used to facilitate transactions within the blockchain network.
On the other hand, tokens are created on the existing blockchain platforms and have multiple uses. They are usually associated with a particular project or protocol within the blockchain network and are used to unlock certain aspects of that project.
Minting coins is more complicated than minting tokens. Creating a coin involves establishing a new blockchain, a process that takes time and technical knowledge and effort while tokens can be easily issued on an existing blockchain.
To sum up, the key use cases and differences of a token vs. coin include:
• A crypto coin is a form of digital currency mainly associated with a particular blockchain.
• Many of them already have real-world value and are used to exchange goods and services.
• There are two ways of getting coins: mining, where one solves a computational puzzle (Proof of Work or PoW), or staking, where one holds a certain number of coins and acts as a network validator (Proof of Stake or PoS).
• Some of the examples are Bitcoin (BTC), Ether (ETH), and Solana SOL.
• A crypto token is created for a decentralised project on an existing blockchain.
• Most tokens so far are issued on Ethereum, as it is the most widely used blockchain for developing decentralised applications (dApps).
• It can either be a virtual asset or grant its holders certain rights and capabilities within the platform.
• Tokens serve various purposes, such as utility, security, and governance.
• These are Tether (USDT), USD Coin (USDC), BitDelta (BDT), and more.
Stablecoins are a form of cryptocurrency that is pegged to some form of asset. Most are ERC20 tokens built on the Ethereum blockchain through a smart contract. But why are they termed stablecoins? The term represents their main function of being used as a store of value, that is, a medium of exchange.
For example, there is USD Coin or USDC, a stablecoin that runs on smart contracts and is not issued on its own blockchain but is an ERC-20 token. The token is known as USDC, and each token is backed by USD held by the company issuing the token to guarantee that the value of each token will always be $1.
In crypto, coins are used for general transactions and holding value, while tokens are created to serve a specific role and create value. However, this does not mean that coins and tokens are incompatible; they can coexist and work harmoniously within the crypto environment.
Whether to buy coins or tokens depends largely on the holder’s goals. Both categories can be found on BitDelta, with competitive fees and secure, feature-rich trading experience.
Coins are autonomous on their blockchain and are mainly used as a means of payment, while tokens are integrated into other blockchains and can represent different types of assets or functions within decentralised systems.
Cryptocurrency coins are issued through activities such as mining, under the proof of work, or staking, under the proof of stake within their own blockchains.
While tokens can be used for transactions within a particular platform, they are usually intended for other functions including governance, access to services, or asset representation which is different from coins that are mainly for digital currency.
Stablecoins are cryptocurrencies that are tethered to a stable asset such as the US dollar, and most of them are tokens issued on existing blockchains such as Ethereum, even though they are referred to as coins.
Tokens are relatively easy to create as they can be developed on existing platforms such as Ethereum or Solana, while coins require setting an entirely new platform, which can be tedious and consumes plenty of resources.
This article is for informational purposes only and not intended as investment or financial advice. It contains opinions and speculations that are subject to change without notice.
The author and publisher disclaim any liability for decisions made based on the content of this article. Readers are advised to conduct their own research and consult a financial advisor before making investment decisions.
Join the community to receive exclusive market analysis and updates!
Ignite your financial journey with BitDelta's diverse asset classes.
